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This study aims to examine the relationship between electricity consumption per capita (ELEC) and real per capita income (Y), as the direction of causation of this relationship remains controversial in the existing literature. It also seeks to explore the relationship between energy consumption per capita (ENC) and real per capita income, over a 34‐year period (between 1975 and 2009).

The study uses Johansen cointegration technique to determine the short‐ and long‐run relationship between the variables. The authors also utilize Granger causality test to determine the causal relationship between the selected variables.

The study provides evidence of bi‐directional causality between the electricity consumption per capita and real per capita income on one hand; and energy consumption per capita and real per capita income on the other hand as the direction of causality has significant policy implications.

This study does not include all dimensions of the energy growth, but is limited to the three variables which the authors consider to be critical to economic development, including energy consumption, electricity consumption and economic growth.

The study uses a sophisticated econometric technique with additional tests of forecasting framework to examine the effect of energy demand on economic growth over a period of the next ten years, i.e. 2010‐2019, in the context of Pakistan. The impulse response describes the reaction of the system as a function of independent variable that parameterizes the dynamic behavior of the system.